Ireland’s weakest bank tests markets
Permanent TSB Group is not deterred by failing in the recent financial stress tests
The first Irish lender to sell Europe’s riskiest type of bank bond is also the nation’s weakest.
Permanent TSB Group Holdings Plc, which failed European financial stress tests last year, is selling €125 million (Dh498 million) of so-called additional Tier-1, or AT1, bonds this week. The undated securities convert into shares should capital drop below a certain threshold and carry coupons that issuers can just decide not to pay.
The sale will nonetheless “will go down extraordinary well,” said Liam Dunne, a fixed-income trader at Merrion Capital in Dublin. “The world has changed. There is huge demand for Irish assets at the moment.”
Coming less than the six years after Irish banks started to impose losses on junior bondholders as the financial system flirted with collapse, the sale demonstrates the renewed appetite for debt across the Eurozone. The market for the riskiest bank debt has swollen to about $80 billion (Dh294 billion) in Europe since Banco Bilbao Vizcaya Argentaria sold the first AT1 note two years ago.
“There is a massive hunt for yield at the moment,” said John Cronin, an analyst with Investec Plc in Dublin. “This instrument will play into that.”
The bank, known as PTSB, may price the bond to yield a shade below 10 per cent, according to Cronin. The yield on Irish 10-year bonds has plunged to 0.7 per cent from a peak of 14.2 per cent in July 2011, when investors shunned the debt on concern about the mounting cost of bailing out the banking system.
Recapitalisation
To cut that cost, Irish banks inflicted about €15 billion of losses on junior bondholders. In 2011, struggling with surging mortgage arrears, PTSB bought back subordinate debt at 20 cents in the euro.
Four years on, PTSB is selling the bonds as part of a plan to raise €525 million of capital, after being the only Irish bank to fail the European Central Bank’s stress test in October.
PTSB, which needed a net €2.7 billion state bailout, is alone among the four largest consumer lenders in Ireland not to return to underlying profit last year.